The immediate headlines out of the latest jobs numbers —
that job growth was solid and the unemployment rate unchanged in
February — would seem like yawners. But there’s some great news beneath
the surface: Americans are returning to the work force in the largest
numbers in many years.
The
American labor force rose by a whopping 555,000 people in February.
Over the last three months, that number totals 1.52 million, the highest
it has been in 16 years. In other words, this winter a lot more people
have been either working or actively looking for work.
That’s
good. The proportion of Americans in the labor force plummeted during
the 2008 recession and its aftermath. That was partly because of
demographic forces, such as baby boomers retiring. It was also caused by
millions of Americans who saw little opportunity and became disengaged
from the workplace — their incomes suffering, their skills atrophying
and the nation’s economic potential diminishing in the process.
But
there is evidence that in the last few months that trend has started to
reverse. The proportion of the adult population in the labor force and
the proportion of the population with a job are both up half a
percentage point since September. For the first time in years it’s fair
to say that they are decisively pointed in the right direction.
Just
last summer, as the United States expansion entered its seventh year
with booming job growth, there was reason to doubt that an improving job
market would ever start to pull people in who had become detached from
the labor force. After all, if seven years of job growth wasn’t enough
to make more people enter the work force, what would be?
We
still don’t know for sure how much more room there is to grow.
Presumably people who dropped out of the labor force around retirement
age are out of the work force for good, no matter how many job
opportunities present themselves. But the data in 2016 will help us find
out how much room for expansion there really is in labor force
participation.
There
is some interplay between the growth in the number of workers and the
most disappointing data point in the February jobs numbers, which was a
step down in average hourly earnings. Over the last year, this number
has risen 2.2 percent, which amounts to a rise in pay for American
workers thanks to very low inflation. But it hardly suggests the kind of
booming economy indicated by the low unemployment rate.
More Americans Are Working or Looking for a Job
The ratio of Americans either working or looking for a job is finally starting to rise.
%
66
64
62
60
58
Labor force participation rate
Employment-to-population ratio
2006
2008
2010
2012
2014
2016
What
seems to be happening is the pool of “shadow workers” who have been
employable but not looking for work has kept a lid on wage increases.
We’ve been able to keep up strong job growth without strong wage gains
because there remain so many people who are not working and not looking
for a job, but who are available to take one when the opportunity
presents itself.
Essentially,
the question about the labor market in 2016 is which of these forces
will prove more powerful. If the labor force keeps growing at the
gangbusters pace of the last three months, all those new entrants will
keep the downward pressure on wages. On the other hand, it might take
higher wages to keep pulling people out of their homes and into the
workplace. And this all assumes that the strong rate of job creation —
242,000 positions added in February, plus positive revisions to previous
months — doesn’t get undone by an era of Federal Reserve interest rate
increases and volatile global markets.
For
the first couple of months of the year, the big story in the job market
has been rising participation. The question for the months ahead is how
long that can persist absent stronger wage growth — and whether the
momentum driving job growth is strong enough to persist despite
ever-present risks.
For
now, the thing to do is celebrate the 1.5 million Americans who are in
the labor force who weren’t in November — and to look for evidence of
how many more people like them are out there, ready to work, as they
increasingly have the opportunity.
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